Mauritius Seeks Trade Agreement Amendments with India

Mauritius is actively pursuing amendments to its trade agreements with India, including the Double Taxation Avoidance Convention (DTAC). The Foreign and Trade Minister, Dhananjay Ramful, brought into light the necessity of revisiting the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) to restore Mauritius’ status as a preferred investment conduit. This initiative comes in response to decline in foreign direct investment (FDI) inflows from Mauritius to India since the treaty’s revision in 2016.

Current Economic Context

Mauritius has historically been a critical source of FDI for India. Since 2000, it has contributed approximately $175 billion, representing 25% of India’s total FDI inflows. However, post-2016 amendments aimed at curbing tax avoidance have led to a drastic drop in these inflows, from $15.72 billion in 2016-17 to just $6.13 billion in 2022-23.

Recent Developments

In the fiscal year 2023-24, FDI from Mauritius rebounded to $7.97 billion. This figure positioned Mauritius as the second-largest source of FDI in India, following Singapore. In the first quarter of 2024-25, inflows reached $3.21 billion, indicating a positive trend. The Mauritian government aims to re-establish its competitive edge in attracting Indian investments.

Negotiations and Amendments

The discussions surrounding the DTAC amendments are ongoing. Minister Ramful has indicated that two critical issues must be resolved before finalising the protocol. A second session of the joint committee is expected to convene soon to address these matters. The goal is to rectify trade imbalances and taxation issues that have arisen since the 2016 amendments.

Strategic Positioning

Minister Ramful has also emphasised Mauritius’ role as a strategic gateway for Indian investors looking to enter the African market. With Africa’s consumer base exceeding 1.3 billion, Mauritius aims to position itself as a vital platform for investment. The country is keen to provide incentives for Indian businesses, enhancing bilateral economic frameworks.

Future Prospects

Indian investments in Mauritius have exceeded $200 million over the past five years. Minister Ramful is optimistic that this figure will increase with improved trade agreements. The upcoming state visit of Prime Minister of India Narendra Modi is anticipated to result in agreements that will further strengthen economic ties between the two nations.

Questions for UPSC:

1. Critically analyse the impact of the Comprehensive Economic Cooperation and Partnership Agreement on Mauritius’ FDI inflows post-2016.
2. What are the implications of the Double Taxation Avoidance Convention on international trade? Discuss with suitable examples.
3. Estimate the potential benefits for Mauritius if it successfully re-establishes its position as a preferred investment conduit for India.
4. Point out the strategic advantages of Mauritius as a gateway for Indian investors targeting the African market. How can this enhance bilateral relations?

Answer Hints:

1. Critically analyse the impact of the Comprehensive Economic Cooperation and Partnership Agreement on Mauritius’ FDI inflows post-2016.

1. The CECPA was signed to enhance trade, but post-2016 amendments led to drop in FDI from $15.72 billion to $6.13 billion.
2. The amendments aimed to curb tax avoidance, which affected Mauritius’ attractiveness as an investment conduit.
3. Despite the decline, FDI from Mauritius rebounded to $7.97 billion in 2023-24, indicating potential recovery.
4. The need to revisit the CECPA suggests that existing terms may not adequately support Mauritius’ economic interests.
5. Ongoing negotiations aim to restore Mauritius’ competitive edge and address trade imbalances.

2. What are the implications of the Double Taxation Avoidance Convention on international trade? Discuss with suitable examples.

1. DTACs prevent double taxation of income, encouraging cross-border investments by providing tax clarity.
2. They enhance the attractiveness of nations as investment hubs, as seen with Mauritius historically benefiting from its DTAC with India.
3. However, stringent amendments can deter FDI, as evidenced by the decline in Mauritius’ inflows post-2016 amendments.
4. DTACs can lead to tax competition, where countries may lower tax rates to attract foreign investors.
5. Examples include Singapore and Mauritius, where favorable tax regimes have positioned them as key investment destinations.

3. Estimate the potential benefits for Mauritius if it successfully re-establishes its position as a preferred investment conduit for India.

1. Increased FDI inflows could boost Mauritius’ economy, leading to job creation and infrastructure development.
2. Enhanced economic ties with India could facilitate technology transfer and skill development.
3. Re-establishing its status would position Mauritius as a very important player in regional trade, especially with Africa.
4. Improved bilateral relations could lead to more comprehensive trade agreements, encouraging long-term economic stability.
5. Potential for Mauritius to attract diverse sectors, including technology, manufacturing, and service industries.

4. Point out the strategic advantages of Mauritius as a gateway for Indian investors targeting the African market. How can this enhance bilateral relations?

1. Mauritius serves as a strategic location for accessing African markets, with a consumer base of 1.3 billion.
2. It offers favorable tax regimes and incentives, making it an attractive platform for Indian investments.
3. Establishing a presence in Mauritius allows Indian companies to navigate African regulations more effectively.
4. Enhanced trade through Mauritius can lead to increased economic cooperation between India and African nations.
5. Strengthening Mauritius’ role as a gateway can lead to deeper cultural and economic ties, encouraging long-term bilateral relations.